Over the last 30 years, the Chinese government has invested in new industrial parks with the intent of stimulating urban economic growth. The central government delegates the site selection decision to provincial leaders. A principal-agent issue arises because the central government prioritizes efficiency and equity criteria while the provincial leader may allocate such place based investments to reward socially connected mayors. We present a revealed preference test of industrial park site selection and document the willingness of China’s provincial leaders to sacrifice economic development in order to reward social connections. We examine the causes and consequences of this misallocation of capital.

Several Chinese cities have invested billions of dollars to construct new industrial parks. These place based investments solve the land assembly problem which allows many productive firms to co-locate close to each other. The resulting local economic growth creates new opportunities for real estate developers and retailers that develop properties and stores close to the new park. The city mayor has the political clout and the personal promotion incentives to anticipate these effects as he chooses whether and where within the city to build the park. Using several geo-coded data sets, we measure the localized spillover effects of the new parks on local incumbent firm productivity, the growth of retail activity close to the park and local real estate pricing and construction. We document...

China's extremely high levels of urban air, water and greenhouse gas emissions levels pose local and global environmental challenges. China's urban leaders have substantial influence and discretion over the evolution of economic activity that generates such externalities. This paper examines the political economy of urban leaders' incentives to tackle pollution issues. Based on a principal-agent framework, we present evidence consistent with the hypothesis that both the central government and the public are placing pressure on China's urban leaders to mitigate externalities. Such "pro-green" incentives suggest that many of China's cities could enjoy significant environmental progress in the near future.